Microsoft issued a vague statement this afternoon explaining that it "is considering and has raised with Yahoo an alternative that would involve a transaction with Yahoo but not an acquisition of all of Yahoo."
This new potential Microsoft-Yahoo deal would revolve around monetizing search traffic, according to several published reports. When Microsoft originally launched its Yahoo takeover bid, much of the company's rhetoric revolved around creating a stronger No. 2 competitor to search giant Google -- so Microsoft's new focus on Yahoo's search business makes sense.
Microsoft originally bid for Yahoo Feb. 1 in a cash-stock offer that, at the time, valued Yahoo's sub-$20 shares at $31 per share, but Yahoo didn't take long to reject the offer, claiming it "undervalued" the company. The two did meet several times but in the end Microsoft walked away from the table after upping its bid to $33 a share.
One of Microsoft's sticking points? Yahoo was pursuing its own deal with Google that would have the search giant monetizing some of Yahoo's search traffic. Such a deal was seen as a "white knight" scenario for Yahoo, because it would generate additional cash flow and had the potential to appease investors, helping it withstand a takeover. However, Microsoft CEO Steve Ballmer warned such a deal would discourage future transactions. So far Yahoo and Google have not announced a search-monetization deal.
Yahoo is still facing pressure from financier Carl Icahn, who last week launched a proxy fight for Yahoo by nominating an alternative slate of board directors. Mr. Icahn also warned Yahoo against exploring any alternatives that could make an acquisition deal less attractive.
Microsoft's statement made clear it was not pursuing a full takeover at this point but appeared to leave the door open. It continued, "Microsoft is not proposing to make a new bid to acquire all of Yahoo at this time, but reserves the right to reconsider that alternative depending on future developments and discussions that may take place with Yahoo or discussions with shareholders of Yahoo or Microsoft or with other third parties."
This latest deal will certainly raise many questions for Microsoft executives; the company holds its annual summit for advertisers this week in Redmond, Wash.